Tax update

Tax and other incentives for the promotion of headquartering

George Karavis
By:
The Council of Ministers of Cyprus approved, on 10 May, a bill with new tax incentives aimed at attracting foreign talent to Cyprus and encouraging international companies to relocate their headquarters to Cyprus.

Expansion of the existing income tax exemption of 50% for taking up employment in Cyprus

The Council of Ministers of Cyprus approved, on 10 May, a bill with new tax incentives aimed at attracting foreign talent to Cyprus and encouraging international companies to relocate their headquarters to Cyprus.

Specifically, the bill provides:

  • Tax exemption of 50% for employees receiving annual salary in Cyprus that exceeds €55.000. The previous plan required annual salary of €100.000 or more for the 50% exemption to apply.
  • The period for which the tax exemption will apply will be 17 years. The previous plan provided for a 10 year period.
  • The tax exemption applies from the first year of employment in Cyprus.
  • The exemption will apply retroactively to the existing eligible employees with annual salaries over €55.000.
  • New and existing employees will benefit from the tax exemption provided that they have lived abroad for a period of 12 consecutive years before the commencement of their employment in Cyprus.
  • A two year grace period will be provided to new employees (employment started from 1 January 2022 onward), and a six month grace period will be given to existing ones (employment started during the year 2020 or 2021) in order to qualify for the provisions (i.e. increase their salaries to €55.000 or more) to be eligible for the tax exemption.

Extension of the tax exemption for investment in innovative companies

On 10 March 2022, the Cyprus Parliament voted for an extension of the tax incentives for investing in innovative enterprises, which were introduced in the Cyprus Income Tax law (ITL) in 2017 (Article 9A), until 30 June 2024.

The amending ITL was published in the Gazette on 18 March 2022. The tax incentives aim to boost entrepreneurship, support start-ups in developing innovative products and services and strengthen the Cypriot entrepreneurial ecosystem.

According to the provisions of Article 9A of the ITL, a “qualifying investor” is an individual that makes a “risk-finance investment” in an “innovative small and medium-sized enterprise (SME)” may deduct the costs of the investment from his/her taxable income, subject to the following limitations:

  • Percentage limit: The tax deduction is limited to 50% of the investor’s taxable income in the year in which the investment is made, as calculated before allowing this deduction but after allowing deductions for life insurance. premiums and contributions to provident and other approved funds (as per Article 14 of the ITL).
  • Annual limit: The total deductible amount may not exceed €150,000 per year.
  • Carry-forward: The remaining investment cost not claimed as tax deductible may be carried forward and deducted from the taxable income of the subsequent five years, subject to the aforementioned restrictions.

Increased tax deductions for research and development (R&D) expenses

The Council of Minsters approved also, an enhanced tax deduction of 20% on R&D expenses and will be valid for three years, starting from the 2022 tax year. Thereafter, R&D expenses shall be eligible for a 120% deduction of the actual expenses as a deduction from taxable income.

Digital Nomad Visa Scheme

With its Decision of October 15, 2021, the Council of Ministers approved the introduction of the Digital Nomad Visa Scheme in Cyprus, initially with a ceiling of 100 residence permits to be issued. On March 3 2022, the Council of Ministers increased the ceiling to 500 residence permits.

The “Cyprus Digital Nomad Visa” Scheme allows non-EU and third-country citizens (non-EEA nationals) to perform their work location-independently. It permits them to temporarily reside in Cyprus and work for an abroad registered employer or carry out work for companies and/or clients situated abroad using telecommunications technology.

This Scheme aims to reinforce Cyprus positioning as a digital service hub, which in combination with other benefits offered by Cyprus, will contribute to the development of the country’s business ecosystem and economic growth. The “Cyprus Digital Nomad Visa Scheme” introduction is part of the Strategy for Attracting Businesses for Activities or/and Expansion of their Cyprus Activities.

Revised policy for the issuance of temporary residence and work permits to third country nationals

The Council of Ministers, with its Decision of October 15, 2021, decided to also replace the current policy regarding the issuance of temporary residence and employment permits to employees of existing and new companies of foreign interests registered in the Republic with a new Strategy for Attracting Businesses for Activities or/and Expansion of their Activities in Cyprus.

Eligible Companies

  • foreign companies operating in Cyprus or foreign companies wishing to establish presence in Cyprus which have a physical presence in Cyprus
  • Cyprus shipping companies
  • Cyprus high-tech/innovation companies
  • Cyprus pharmaceutical companies or companies operating in the fields of biogenetics and biotechnology.

Main provisions

  • a gross monthly salary of minimum €2.500 for employees who have the required academic skills or at least two years of relevant experience
  • companies will be able to employ third country nationals as support staff (with gross monthly salary below €2.500) provided that the employment of third-country nationals does not exceed 30% of the total supporting staff
  • the maximum number of third country nationals is 70% of the total number of employees in a 5-year period from the date of the inclusion of the company in the Business Facilitation Unit
  • the duration of the residence and work permit can be up to three years and will be issued within one month from the application date.

Family Reunification

Immediate and free access to employment will be provided for spouses of third country nationals who have obtained a residence and work permit in the Republic, and who receive a minimum gross monthly salary of €2.500 (not applicable for support staff).

Transformation of the existing Fast Track Business Activation Mechanism into a Business Facilitation Unit

The Business Facilitation Unit will function as the central point of contact for business in order to coordinate and direct all the international companies which are either operating in Cyprus or are interested to operate in the country, as well as for Cyprus companies operating in specific areas of economic activities, such as Cypriot high-tech or innovation companies, Shipping companies, Pharmaceutical companies or companies operating in the Biotechnology and Biogenetics fields.

The Business Facilitation Unit will provide guidance and information on the necessary licenses that are required for a company to operate in Cyprus such as:

  • company registration and approval of name
  • registration with the Employers’ and Social Insurance Registry
  • guidance for the establishment and operation of companies in the Republic
  • registration with the Income Tax and VAT Authorities
  • facilitation of the process for the issuance of residence and employment permits.